Advanced and emerging postal organizations are increasingly vulnerable to various forms of revenue leakage,including no payment, underpayment, counterfeited evidencing. Postal revenue leakage in Europe alone is estimated at over $1.0 billion annually. The question often asked is whether the cost of protection will justify the returns. As new technology solutions emerge, protection from leakage can be better integrated into business processes in order to deter theft. The webinar will discuss practices that can be applied in various environments across postal organizations, and across evidencing channels (bulk-permit, bulk-meter, retail, online postage, etc.)

1. Combating Revenue Leakage
Prepared by
With the Assistance of
Chris Paterson
JP Ducasse

2. Webinar Outline
Leakage – definition and overview
Overview of a general framework to combat leakage
Measuring leakage
Establishing mitigation policies
Combating leakage
What you should consider
2

3. Combating revenue leakage
Definition*
Combating revenue leakage consists of
engaging in activities that help a Post:
Collect all the postage revenue owed to it, and
Curb the sources/reasons of leakage.
Leakage stems from one of four main risks
Counterfeit (e.g., illegal issues, fake imprints)
Bypass mail (e.g., mail inducted without any form
of payment)
Shortpaid or underpaid (e.g., mail tendered with
insufficient postage)
Problems related to billing or postage collection
(e.g., bad cheques; accounting errors)
Combating revenue leakage consists of setting
policies to mitigate the sources of risks
* Source: UPU Consultative Committee – Postal Revenue Protection Working Group
3

4. Recent trends
Steps in the right direction But room for improvement
• Global awareness of leakage • Not all posts have established a well-
issues has increased (75% of posts structured revenue protection function
admit they experience leakage)
• Posts have heavily invested in • Mail acceptance and verification is still
revenue protection technology, very much manual and time consuming,
making some channels more and often plagued with inconsistencies in
secure (meters, stamps) performance.
• Verification technologies (e.g., • Fraudsters too leverage technologies...
OCR-based) becoming more • New products may not be ‘leakage-free’
effective and/or more affordable • ROI of technology solutions is still an
and scalable issue, e.g., for smaller posts
4

5. A broader choice of technologies is
now available to fight leakage
Evidencing
• Deployment of digital meters in smaller emerging markets
• Anti-fraud security measures (special inks, holograms…) for stamps
Acceptance/verification
• E-documentation
• Sorters/counting machines for piece count (for sampling, verification
or terminal dues purposes)
• Modular dimensions/weight/data capture solutions for use in post
offices
A few
examples Processing
• Lower-end sorters suitable for mid-tier posts
• Large CFC with on the fly weighing of parcels or letters
• Capability to trace back an item to a specific sender
Billing/reconciling software solutions
(e.g., USPS Permit RP project)
5

6. Two main challenges
Measuring and identification is difficult
A touchy issue : leakages relate to posts’ weaknesses - a mix of fraud
and (operational or accounting) issues;
Amounts recovered are just the tip of the iceberg;
Posts use multiple channels and processes;
Data sources are diverse (spot checks, sampling, data from operations
and from accounting systems) and don’t necessarily match.
There is no off the shelf mitigation
Optimal responses will depend on :
Products’ terms and conditions (e.g., preparation requirements);
Product and channel mix (stamps, permit mail, metered mail, web
based payments), letters vs. parcels…
Post’s use of technology (sorting, barcoding, accounting systems) vs.
use of manual processes.
6

7. Global posts’ top concerns :
identification and controls, HR
issues, streamlining operations
Top 5 concerns
expressed by
Posts worldwide
7

8. Typical leakage issues
Problems Multiple root causes
Accuracy of discounts claimed vs. postage Overly complex (or poorly understood)
paid (non-compliance with preparation product terms and conditions
requirements)
Actual number of bulk mail items entered vs. Fraud (on the part of mailers or postal staff)
number on mailing statement
Underpaid (shortpaid) mail Acceptance, verification and billing
processes poorly documented OR not
Bulk mail deposited at “wrong” places (e.g., followed by postal staff
collection boxes) – “bypass mail”
Malicious duplication of e-parcels / PC Poorly designed or executed sampling plans
postage/meter imprints (fraud)
Lack of integration of the Post’s information
Errors/discrepancies in systems (data from operations, accounting)
reconciliation/invoicing/payment process – islands of automation in oceans of paper
forms
8

9. Combating revenue leakage
A framework
Measure & Establish
Combat
Identify Mitigation
Leakage
Leakage Policies
9

10. Measure & Measuring and identifying leakage
Identify
Leakage Methodological approach
Audit Identify Develop a Sampling Monitoring
Existing Critical Sampling and &
Systems Dimensions Regime Estimation Validation
• Leakage • Identify critical • Which • Physical sampling is • Random
estimation is dimensions of the measurements? administered monitoring of
not revenue mail flow to When? How? By physical
recovery ensure adequate whom? • Engage in real time sampling.
representation revenue leakage
• Effective • Conduct pilot estimation • Validating data
estimation • Develop a studies to: integrities
precedes targeted working a. Generate optimal • Update skips ensures
and plan sample sizes quarterly to retain sampling occurs
facilitates (Understand optimum currency as intended.
recovery. variability); and integrity
b. Assess the
constraints for
sampling
10

11. Audit
Measure &
Existing
Systems Audit Existing Systems
Identify
Leakage
Existing revenue recovery mechanisms tend to exhibit a bias to higher
risk customers which is at odds with a simple random sampling approach
across the entire mail flow.
Assess the appropriateness for leakage measurement of the existing
revenue checking system, if it does exist.
Systems configured for revenue recovery only may not be suitable for
measurement.
Effective leakage measurement depends on identifying the critical
dimensions of the mail flow.
11

12. Identify
Measure &
Critical
Dimensions Identify the critical dimensions
Identify
Leakage
Defining Objectives
Estimate Revenue Leakage Risk
Physical Sampling and
estimation process.
How then do we identify the critical
dimensions of the mail flow? Segmented Sampling
Frame Letters Parcels
Conceptualisation will differ
slightly in content to Letters.
A stratification process delineates the
levels where leakages emanate from. Adopted to ensure each Facilities by Level 2 Stratification:
critical component in the Geographical Ensure each product segment
composition of mail is Location relevant to a specific facility is
There is a need for adequate captured. captured.
sampling across each of these
Bulk M1
dimensions. Facility M
A
Level 1 Stratification I
This then provides postal ensures each L
M2
organizations with an estimate of lodgement facility is Sort Center
T
captured across each
revenue leakage at each dimension. wide geographical unit. Y
P
E
Mn
In understanding revenue leakage at Delivery Unit
these sub-levels then combative
policies may be devised to target
problematic areas. Time Dependant Elements
Time Dependant Elements Cross representation of time of the day, days in the week,
months and quarters of the year.
12

13. Develop a
Measure &
Sampling
Regime Develop a sampling regime
Identify
Leakage
Determine optimal sample sizes on a rolling basis using
The underlying sample data
Advanced distribution-free statistical methodologies
Seek to estimate leakage at 95% confidence and within +/-5% precision
Design a sampling system that is capable of dealing with the practical
impediments of data collection, that may alter the degree of data integrity
Tight processing windows
Resourcing constraints
Sample space issues.
13

14. Implement
Measure &
Estimation
Framework
Implement an estimation framework
Identify
Leakage
Collect, record, and transmit sample
information to generate final estimates at a Sample
variety of levels
Processing Center
Integrated algorithms can generate final Letters Flats Parcels
estimates at a variety of levels Compute
Estimates % % %
Stamped Leakage Leakage Leakage
% % %
Metered Leakage Leakage Leakage
Take action via policy responses to % % %
Permit
mitigate revenue leakage in a targeted Leakage Leakage Leakage
Define
manner
Policies
The rolling nature of the estimation
facilitates the benchmarking of policy
effectiveness
14

15. Combating revenue leakage
A framework
Measure & Establish
Combat
Identify Mitigation
Leakage
Leakage Policies
15

16. Establish Effective revenue protection policies
Mitigation
Policies have impacts across the board
Customer relations
Impact on mailers’ mail production processes, training requirements, compliance costs
(new investment)
Changes to terms and conditions impact product convenience and demand
Business processes
Impact on quality of service and personnel costs (overtime)
Major initiatives such as “seamless acceptance” impact work positions (e.g., for
verification clerks)
Impact on information systems (turning new data into revenue recoveries…)
Technology solutions
A different response for each channel (e.g., retail vs bulk mail)
Measuring the ROI of proposed technology solution vs. improving/fine-tuning current
processes
People and training
Rev Pro awareness + training on current and new processes
Setting KPI and monitoring compliance with processes
Foster cooperation between R&D, marketing, operations, and finance
16

17. Combating revenue leakage
A framework
Measure & Establish
Combat
Identify Mitigation
Leakage
Leakage Policies
17

18. Combat
Discussing “acceptable” tolerance
Leakage levels – Royal Mail
Background
Royal Mail “reversions” have increased dramatically as part of its program to improve
operational efficiencies.
Mailers called for more “transparency” and “proportionality” (of fines) while RM insisted 100%
compliance was needed for both revenue protection and operational purposes.
In 2012 industry outcry prompted RM to launch industry-wide discussions .
There is no “perfect mailing”
What evidence should be provided by the Post’s revenue protection teams to mailers ?
Which mail attributes should rev pro teams focus on ?
RM has temporarily lifted specific non-compliance penalties (on sealing specs).
Policy Implications
Review terms and conditions and make them more explicit to increase transparency ?
Reposition/strengthen revenue protection units on customers’ premises ?
18

19. Combat
Detecting unpaid/underpaid mail: PostNL
Leakage
Moving from manual to
automated detection of
underpaid mail (19 CFC being
installed)
Automated recovery process for
single piece mail : payment
card, online payment by
recipient
Policy implications
Need to balance identification
costs with recovery costs.
19

20. Combat
Balancing technology and better controls :
Leakage SAPO (South African Post)
Bulk mail is #1 priority, other
streams will follow
First mile automation: electronic
manifesting (‘eBDN’)
Optimized sampling plans and
processes
Well-trained regional revenue
protection teams
2 to 3 m USD recovered every
year
Policy implications:
developing revenue protection
capability as a step-by-step
journey
20

21. Combat
Posts in Least Developed Countries still
Leakage need to lay the ground work
Carrying out revenue protection audits
To identify/confirm main issues
To assess robustness of current controls
Prepare and execute revenue protection plans
Documenting current product terms and conditions, product
specifications, and ensuring they are met;
Documenting processes and standards (including sampling)
communicating on them, monitoring compliance;
Training staff along the revenue protection along the value chain/creating teams;
Putting in place management processes/measurement and reporting systems to ensure
that revenue protection is managed appropriately and leakage detected;
Longer-term, considering the RoI of low-cost technology / rev pro devices – from
cardboard letter scales to lower-end sorters to digital meters at counters.
Policy implications
In LDCs streamlining current processes is a priority,
not technology
21

22. Revenue protection moving forward :
Combat
Leakage
Eliminating manual verification ?
– U.S.P.S.
Traditional bulk mail acceptance Seamless acceptance
On the fly verification from scans during
processing
Paper or electronic (e-Doc)
documentation submitted with mailing
Acceptance clerk samples mailing, and
verifies documentation for accuracy
Acceptance of statement = proof of
mailing and payment
Mailing is inducted after acceptance
Source : USPS (2012)
Policy Implications
- Building mailers’ confidence in new tracking/reporting system
- Joint post/industry collaboration is essential (e.g., MTAC in the U.S.)
- Automation is just part of the equation, adaptation of information systems is key + HR implications
22

24. ERROR: stackunderflow
OFFENDING COMMAND: ~
STACK: